HONG KONG (AP) 鈥� A Hong Kong court ordered China Evergrande, the world鈥檚 most , to undergo liquidation following a failed effort to restructure $300 billion owed to banks and bondholders that fueled fears about China鈥檚 rising debt burden.
鈥淚t would be a situation where the court says enough is enough,鈥� Judge Linda Chan said Monday. She said it was appropriate for the court to order Evergrande to wind up its business given a 鈥渓ack of progress on the part of the company putting forward a viable restructuring proposal鈥� as well as Evergrande鈥檚 insolvency.
China Evergrande Group is among that have collapsed since 2020 under official pressure to rein in surging debt the ruling Communist Party views as a threat to China鈥檚 slowing
But the crackdown on excess borrowing tipped the , dragging on the economy and rattling financial systems in and outside China.
Chinese regulators have said the risks of global shockwaves from Evergrande's failure can be contained. The court documents seen Monday showed Evergrande owes about $25.4 billion to foreign creditors. Its total assets of about $240 billion are dwarfed by its total liabilities.
鈥淚t is indisputable that the company is grossly insolvent and is unable to pay its debts,鈥� the documents say.
About 90% of Evergrande's business is in mainland China. Its chairman, Hui Ka Yan, who is also known as Xu Jiayin, was detained by authorities for suspected 鈥渋llegal crimes鈥� in late September, further complicating the company's efforts to recover.
It's unclear how the liquidation order will affect China鈥檚 financial system or Evergrande's operations as it struggles to deliver housing that has been paid for but not yet handed over to families that put their life savings into such investments.
Evergrande's Hong Kong-traded shares plunged nearly 21% early Monday before they were suspended from trading. But Hong Kong's benchmark Hang Seng index was up 0.9% and some property developers saw gains in their share prices.
China鈥檚 largest real estate developer, Country Garden, initially gained nearly 3% but was flat. Sunac China Holdings rose 2.4%.
The Shanghai Composite index dropped 0.9% while Shenzhen's A-share index fell more than 2%.
The Hong Kong court gave Evergrande to allow it time to 鈥渞efine鈥� a new debt restructuring plan.
But Chan, the judge, said Evergrande 鈥渉as not demonstrated that there is any useful purpose for the court to adjourn the petition 鈥� there is no restructuring proposal, let alone a viable proposal which has the support of the requisite majorities of the creditors.鈥�
In remarks published online, she lambasted the company for putting out only 鈥済eneral ideas鈥� about what it may or may not be able to put forward as a restructuring proposal. The interests of creditors would be better protected if Evergrande is wound up by the court, she said.
Fergus Saurin, a lawyer representing an ad hoc group of creditors, said Monday he was not surprised by the outcome.
鈥淭he company has failed to engage with us. There has been a history of last-minute engagement which has gone nowhere,鈥� he said.
Saurin said that his team worked in good faith during the negotiations. Evergrande 鈥渙nly has itself to blame for being wound up,鈥� he said.
Tiffany Wong, one of two liquidators appointed by the court from global services firm Alvarez & Marsal, said that their priority was to ensure that "as much of the business as possible (is) retained, restructured and remains operational.鈥�
鈥淲e will pursue a structured approach to preserve and return value to the creditors and other stakeholders,鈥� Wong said. That includes considering any viable restructuring proposals, she said.
Evergrande CEO Shawn Siu told Chinese news outlet 21Jingji that the company feels 鈥渦tmost regret鈥� at the liquidation order.
He emphasized that the order affects only the Hong Kong-listed China Evergrande unit and that the group鈥檚 domestic and overseas units are independent legal entities. Siu said that Evergrande will strive to continue smooth operations and deliver properties to buyers.
Real estate drove China鈥檚 economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That has helped to push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.
Evergrande first defaulted on its financial obligations in 2021, just over a year after Beijing clamped down on lending to property developers to cool a property bubble.
As a former British colony, Hong Kong operates under a legal system that is separate, though increasingly influenced by, communist-ruled China鈥檚. In some cases, mainland courts have recognized bankruptcy rulings in Hong Kong but analysts say Evergrande鈥檚 is something of a test case.
Brock Silvers, managing director at Kaiyuan Capital, said the liquidation order was likely to have more of an immediate impact on foreign investors and their confidence in China's financial markets than on Evergrande's operations in mainland China.
鈥淪o onshore, Evergrande tomorrow will look a lot like Evergrande yesterday, there won鈥檛 be a lot of noticeable difference,鈥� he said.
Regulators need to restructure Evergrande and other struggling property developers, but it will be a complex and difficult process, said David Goodman, director of the China Studies Center at the University of Sydney.
鈥淚f the government could see simple answers to these problems, it would have reached them two to three years ago,鈥� Goodman said.
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Zen Soo reported from Singapore.
Kanis Leung And Zen Soo, The Associated Press
